WASHINGTON (AP) -- Democrats' promise of a quick increase in the minimum wage ran aground Wednesday in the Senate, where lawmakers are insisting it include new tax breaks for restaurants and other businesses that rely on low-pay workers.

On a 54-43 vote, proponents lost an effort to advance a House-passed bill that would lift the pay floor from $5.15 to $7.25 an hour without any accompanying tax cut. Opponents of the tax cut needed 60 votes to prevail.

The vote sent a message to House and Senate Democrats that only a hybrid tax and minimum wage package could succeed in the Senate. But any tax breaks in the bill would put the Senate on a collision course with the House, which is required by the Constitution to initiate tax measures.

In a separate vote, the Senate also effectively killed a modified line-item veto bill. The Republican-inspired measure would have permitted a president to pluck individual items out of spending bills and submit them to Congress for a vote.

Minimum wage unchanged for 10 years
Raising the minimum wage is one of the new Democratic Congress' top priorities. The wage floor has been unchanged for 10 years. The bill would increase it to $7.25 in three steps over 26 months.

The House passed the increase two weeks ago. Since then, Speaker Nancy Pelosi, D-California, and Rep. Charles Rangel, the chairman of the tax writing Ways and Means Committee, have prodded the Senate to keep tax proposals out of the bill.

Reid is backing an $8.3 billion tax package that would extend for five years a tax credit for employers who hire low-income or disadvantaged workers. It also extends until 2010 tax rules that permit businesses to combine as much as $112,000 in expenses into one annual tax deduction.

The cost of the proposal would be paid with revenue realized from a proposed cap of $1 million on executive compensation that can be tax deferred. The tax package also would end deductions for court settlements or punitive damages paid by companies that have been sued.

Copyright 2007 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

UPDATE: IT WAS PASSED!!!!!!!!!!!!!!! but with tax cuts to small business so what they dont pay for in taxes, civilians make up for with higher taxes im sure.........

Senate passes minimum-wage, tax break bill
Conflicting bills to put House, Senate Democrats at odds over amendments.
By Christian Zappone, CNNMoney.com staff writer
February 1 2007: 6:06 PM EST
NEW YORK (CNNMoney.com) -- The Senate voted 94-3 Thursday to increase the federal minimum wage in three steps from $5.15 to $7.25 in a bill that also gives $8 billion worth of tax cuts to small business.

The bill, following an exhaustive debate that brought dozens of proposed amendments mostly by Republicans, now goes back to the House of Representatives, where the original bill passed on Jan. 10 with no amendments.

The difference between the Senate bill and the "clean" House bill will become a test of the Senate's and the House's will to compromise.

Sen. Sherrod Brown (D-Ohio) invoked civil rights leader Martin Luther King in a press conference after the vote: "MLK said equality means dignity and dignity demands a paycheck that lasts throughout the week," Brown said. "This is a small down payment on social justice."

But both sides claimed victory.

"This is a testament to what we can accomplish when we work together to move critical legislation forward," said Senate Minority Leader Mitch McConnell (R-Ky.). "We look forward to working with the House of Representatives to send a final bill to the President that will be a victory for both those who earn the minimum wage and those who pay it."

The added tax breaks are an attempt to compensate small businesses, which many argue will bear the brunt of a minimum-wage increase. To pay for those tax breaks, the Senate bill includes provisions closing corporate tax loopholes and provisions that would also cap the amount of tax-deferred compensation executives are entitled to.

The House technically has the right to set aside any tax or budget bill that come from the Senate.

Rep. Charles Rangel (D-N.Y.), chair of the House Ways and Means Committee, had earlier reiterated his prerogative to "blue-slip" or set aside indefinitely such a bill coming from the Senate.

Senate Republicans and President Bush, however, have said they wouldn't support a minimum-wage bill without tax breaks for small business.

House Democratic staffers say the mood in the House is to let the Senate do what it needs to do in order to get a bill passed there.

Democratic senators were optimistic about compromise. Sen. Edward Kennedy (D-Mass.), a longtime advocate of the minimum-wage raise, said, "with a vote of 94-3 this is going to happen," noting, however, that he hopes it happens sooner rather than later.

A minimum-wage hike, which hasn't occurred since 1997, has been a key piece of the first 100 hours of legislation promised and passed by the newly elected Democratic majority in the House.

A minimum-wage hike would directly affect 6.6 million workers currently earning the $5.15 wage, according to the labor-backed Economic Policy Institute.

The hike could also increase the wages of another 8.3 million who earn just above the minimum. Workers in 28 states plus Washington, D.C., already have a higher minimum wage. A number of those states have automatic increases for inflation.